Sweet Nothings? A Proposed Sugar Tax

The television chef Jamie Oliver is currently fronting a campaign to introduce a ‘tax on sugary drinks’. He explains: 

“I presented a Channel 4 documentary called Sugar Rush, showing how many teenagers and children, including those of nursery age, are consuming more sugar than is recommended by the World Health Organisation. And, of course, the single largest source is sugary, sweetened drinks.”

The campaign aims to persuade the government to introduce a tax at 20% per litre, which would result in approximately 7p being added to the price of a 330ml can of fizzy drink. 

The idea of a sugar tax is nothing new.  In the early eighteenth century, Parliament passed the Molasses Act, imposing a prohibitive sum on imports from the French West Indies, and thereby handing a competitive advantage to traders in the British colonies.  It seems to have been honoured more in the breach than the observance, due to the punitively high level of tax it imposed.  In 1764, the Sugar Act was passed.  In contrast with the Molasses Act, it was intended as a revenue-raising exercise rather than an attempt to manipulate trade.  American colonists were not amused, however, leading to protest and evasion and providing an early instance of the dissatisfaction that, later the same century, greeted the Stamp Act and other measures which ultimately prompted a revolution.

Most likely Oliver’s intended tax would not have quite the same seismic constitutional consequences, and evasion of sales tax is much more difficult in modern times than in the bucolic world of the eighteenth century colonies.  Moreover, unlike the earlier Sugar Act, his stated aim is not simply to line the state’s coffers: the goal of the campaign is to reduce consumption of sugary drinks and thus reduce the rate of obesity in Britain.

His campaign therefore has a laudable aim.  And yet the campaign is not without its opponents, notably in the form of a counter group, ‘People Against Sugar Tax’ (PAST).  PAST does not dispute that sugar is unhealthy, but argues that a new tax is the wrong solution. According to its website:

“Very few countries around the world have gone ahead with any form of sugar tax. Several countries have considered it, but have then realised the flaws behind the idea.

To begin with, a sugar tax set at 20% would have little impact on reducing obesity levels. The impact will be on people’s budgets. A sugar tax is regressive, and would affect poorer people more than anyone else.

We feel there are other ways in which the issues of obesity can be tackled.

Better nutritional labelling on products would be a first step. Currently, some nutritional labels are confusing, and a more simplified labelling system could easily be introduced, and could be done so relatively quickly.

Encouraging children to do more exercise, particularly in the summer holidays, would be another good step. Sedentary lifestyles are a key reason why obesity levels have risen in recent years. Exercise is key to maintaining a healthy lifestyle. Good amounts of exercise can help prevent heart disease, high blood pressure, diabetes and other health conditions.

Another good step would be to end the ‘buy one, get one free’ offers in supermarkets. This could be done relatively quickly, and would be more sensible than a sugar tax.”

PAST’s point about regressive taxation is an important one, and applies to most consumption tax.  Allowing for generalisations, since the poor spend all of their income, all of it is subject to the tax, whereas the wealthy save or invest much of their money.  In this respect Oliver’s campaign has a slightly more recent precedent, in the form of the ‘Free Breakfast Table’ demanded by the Radical MP John Bright in the nineteenth century, which aimed to remove all indirect taxes on basic foodstuffs. That campaign continued into the twentieth century with support from both the Liberal and Labour parties.  In those days, needless to say, the health problems associated with sugar consumption were not as well understood as today.

Given that PAST does not dispute the downside of sugar consumption, and indeed agrees that it ought to be reduced, the nub of the debate concerns the methods by which the state might achieve that goal.

As one of PAST’s members, Alex Deane, has pointed out elsewhere, many sugary foods are already subject to tax in the form of VAT.  While ‘ordinary’ food and drink is exempt from VAT, sweets and soft drinks (among other things) are not, meaning they are subject to the standard rate of 20%.

One might add that VAT as opposed to a simple sales tax was invented to solve the problem of enforcement, since unlike a simple sales tax, the retailer has every incentive to collect the tax from the consumer, in order to offset the input tax the retailer will have paid the supplier.  HMRC is thus better placed to collect the tax than its eighteenth century predecessors.  Offering different rates of, and exemptions from, VAT is not without its problems, however, particularly in the context of foodstuffs, which have led to the famous disputes over whether Jaffa cakes (made partly with sugar) are biscuits or cakes.  

Importantly, Deane notes that the existence of the standard rate of VAT has not precluded the rise in obesity which Oliver is seeking to reduce.  Here it should be observed that Oliver’s proposed additional 7p rise is unlikely to reduce much consumption even amongst the poorest members of society; something akin to the punitive rates imposed on cigarettes in different countries would be required to price sugary drinks out of the market.

Both Oliver and PAST agree that education of the public about the dangers of sugar, and better labelling of sugary drinks, are two measures that might also be introduced; PAST argue instead of, rather than as well as, additional taxes.  But if all are agreed that sugar consumption should be reduced, why should the state not try every measure at its disposal, including taxation?

There are several reasons which, if not a compelling rebuttal, suggest a measure of caution or at least realism might be advisable.  First, sugar-free drinks are not without their own health implications. Secondly, obesity is not found only among the lower paid or less educated.  Thirdly, the existence of VAT exemptions means that at least some sugary foods will not attract the same degree of taxation (unless substantially more radical forms of taxation are devised).

Finally, there is the wider philosophical question of the role of the state.  Beyond education and public information about sugar (acknowledging that pure libertarians would dispute that the state has any business even in those), should the state even attempt to restrict people’s choices about food, health, and general lifestyle?  That is some food for thought, at least. 

by James Wilson, Senior Editor, Bloomberg BNA